Economy & Finance

Brokerage firms debate value of Certified Financial Planner title

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NEW YORK (Reuters) – Some of Wall Street’s biggest brokerage firms are at odds over the bottom-line returns of a three-letter credential they are vigorously promoting to their brokers.

The CFP (for certified financial planner) title is conferred by the nonprofit Certified Financial Planner Board of Standards, which touts it as “the standard of excellence for competent and ethical personal financial planning.”

The insignia has become a popular addition to brokers’ business cards since clients were traumatized by the market collapse of 2008. With consumer faith in brokers’ investment skills shaken – and commissions for simple buy and sell orders slipping – brokers are positioning themselves as trusted advisers that help clients meet goals ranging from saving for college to estate planning.

Yet while some firms are pushing their brokers to earn the CFP credential as a way of attracting clients and profits, others say the bottom line benefits have not been proven.

Over the last five years, the number of CFP holders has grown 23 percent to 68,0000, about half of whom work at the 50 largest financial services firms, said Joe Maugeri, director of firm relations at the CFP Board. Firms pushing advisers to get the license range Bank of America Corp’s Merrill Lynch to Charles Schwab Corp, which traditionally offered little direct advice to clients.

Even firms that disdain working with people with less than $250,000 to invest are pitching to wealthier clients with the kind of college-and-retirement planning talk traditionally aimed at the less well-to-do by insurance sales people.


Merrill, the world’s second biggest broker, last year began requiring the almost 4,000 new brokers in its training program to complete the six-course CFP study curriculum within three years. It also gives pay incentives to adviser teams that include a CFP holder and boasts almost 3,500 CFP holders among its 14,500 or so financial advisers.

“If you have your CFP you do more revenue and grow at a faster rate,” said Dwight Mathis, head of new advisor strategy at Merrill Lynch Wealth Management.

A study within the private client group of Wells Fargo & Co’s principal brokerage unit found “an incremental increase” in production among advisers who passed the CFP exam, a spokesman said.

Those are conclusions that David McWilliams, who holds the unique title of Head of Wealth Management Transformation at UBS Wealth Management Americas, would love to reach.

UBS encourages its approximately 7,000 advisers to offer financial plans to their clients with investable assets of $1 million or more and recently began allowing them to charge as much as $50,000 for a plan (although most begin with a fee closer to $4,500). It has an internal “Private Wealth Advisor” accreditation program for upper-tier advisers and encourages all to obtain CFP certifications, a spokesman said.

But try as he might, McWilliams, who was a longtime manager at Merrill Lynch, does not see how the CFP designation leads advisers to produce more revenue.

“We have no lift in any category on CFPs,” he said. “I was trying to make it work in 100 different ways, but we have nothing to show.”

His conclusions conflict with a CFP Board-sponsored study from consulting firm Aite Group last year. It found that brokerage teams that included a CFP holder generated 30 percent more revenue than teams without one. Solo practitioners with certification did even better, producing 40 percent to 100 percent more than brokers with no certificates.

The credential, oft recommended to investors by consumer advocates, works best among new advisers, the study said. Among advisers who have been practicing 10 years or less, only 8 percent make more than $215,000 a year. The number more than doubles to 17 percent if they have a CFP designation.


To be sure, UBS Wealth and other traditional brokerage firms have structural, supervisory and legal hurdles in handling a rapid growth of credentialed financial planners, said Sophie Schmitt, the senior Aite analyst who coordinated the study.

That is because brokers are regulated as sales people who are required only to ensure products are “suitable” to a client’s objectives and risk appetite. They are allowed to give financial advice only if it is “incidental” to a sale.

Obtaining a CFP, however, could subject them to the higher fiduciary standard imposed on investment advisers, Schmitt said. That requires them to put client interests ahead of their own, meaning they cannot sell a product more remunerative to them and their firm than a cheaper alternative.

A top-tier adviser at Morgan Stanley who has a CFP-registered partner said he personally resists offering written financial plans because of potential liability for giving advice that might conflict with a fiduciary standard of care.

The riddle for UBS and some other firms is how to market their brokers as trusted advisers without burdening them with the fiduciary responsibility in every client encounter. The CFP Board says its ethics code is adaptable to firm structures, but its disciplinary and ethics committee has brought charges against advisers who said they had no inkling they were involved in a fiduciary discussion.

As a result, firms are wary about using the term “financial planning” even as they move closer to it, Schmitt said.

Some firms have even retrenched. State Farm Mutal Automobile Insurance Co forced agents with CFPs to relinquish the designation four years ago because of potential liability for selling proprietary products, although Maugeri said discussions with the insurer are continuing on ways to resolve perceived conflicts.

Firms such as Northwestern Mutual Life Insurance are now tiptoeing into the planning market by promoting financial planning credentials only to select advisers.

A senior executive at one of the biggest U.S. broker-dealers recently told Schmitt that having a CFP designation does not increase a job applicants chances of getting hired because of the higher supervisory costs involved in managing such advisers.

The firm was not UBS Wealth Americas, she said.

As for McWilliam’s bottom-line quandary, the CFP Board’s Maugeri is dismissive.

“That ship has sailed,” he said. “Firms recognize that CFP certificants are some of the most successful they have.”

Merrill’s Mathis agrees: “Getting a CFP made me a better adviser and my production went up every year after I got it.”

(Reporting By Jed Horowitz.- Editing by Linda Stern and Andre Grenon)

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